TLDR
- Bank cash reserves at the Federal Reserve dropped to approximately $2.93 trillion last week, approaching levels that historically trigger policy responses
- Author Adam Livingston believes reserves are within five weeks of reaching a “danger zone” that could prompt changes in Federal Reserve policy
- Three factors are draining liquidity: Treasury rebuilding cash balances, Fed’s quantitative tightening program, and growing currency circulation
- Bitcoin ETFs are reducing available supply by absorbing coins from the market, creating potential scarcity conditions
- Livingston argues similar reserve squeezes in 2019, 2020, and 2023 preceded strong bitcoin rallies when the Fed eased policy
Bank cash held at the Federal Reserve fell to about $2.93 trillion last week. The Kobeissi Letter reported this figure in an October 25 post tracking reserve balances.
Adam Livingston, a bitcoin-focused author and market commentator, says the current level puts reserves close to a threshold that could force policy changes. He believes reserves are “within five weeks of the danger zone.” The Kobeissi Letter is an independent macro markets newsletter run by analyst Adam Kobeissi.
BREAKING: Bank reserves just punched a hole in the $3 T floor.
Liquidity is bleeding faster than a GameStop short squeeze.
QT is cornered, repo desks are sweating bullets, and the Fed’s only parachute is the money printer set to “infinite.”
Bitcoin is the anti-fragile… https://t.co/I0aoLu6TuI
— Adam Livingston (@AdamBLiv) October 25, 2025
Reserve balances represent cash that banks keep on deposit at the Fed. When this number drops, dollar liquidity becomes tighter. Short-term funding markets can become more sensitive to changes.
The Kobeissi Letter focused on what the reserve level means for Federal Reserve policy and quantitative tightening. Livingston took the same data and applied it to bitcoin markets. He has written two books connecting monetary cycles to digital assets.
Livingston identifies three factors pulling cash out of the banking system. The U.S. Treasury has been rebuilding its cash balance at the Fed. When the government sells more Treasury bills to fill that account, it absorbs private cash and reduces bank reserves.
The Federal Reserve is also shrinking its portfolio through quantitative tightening. The central bank lets bonds mature without replacing them. This process removes cash from the system.
Other Fed liabilities like currency in circulation grow over time. This takes up balance sheet space and leaves less room for bank cash unless policy adjusts.
Supply and Demand Dynamics
Livingston says he has observed a pattern in previous cycles. When cash becomes scarce and funding markets get stressed, officials typically slow balance sheet runoff. They take steps to keep overnight rates stable.
He argues these turning points often align with stronger bitcoin performance. Livingston points to three historical examples. The 2019 repo market crisis saw funding rates spike before the Fed intervened.
The 2020 emergency policy response included massive liquidity injections. The 2023 regional bank troubles prompted new Fed lending facilities. Livingston says each event coincided with large bitcoin price increases.
Bitcoin ETF Impact
Spot bitcoin exchange-traded funds are the second part of Livingston’s analysis. He says these products create steady demand for bitcoin. ETFs reduce the amount of coin readily available to trade.
From October 20 to October 24 (ET), spot Bitcoin ETFs saw a net inflow of $446 million for the week, with BlackRock’s IBIT leading at $324 million. In contrast, spot Ethereum ETFs recorded a net outflow of $244 million, led by Fidelity’s FETH with $95.25 million in outflows. None… pic.twitter.com/InCkeLXhjT
— Wu Blockchain (@WuBlockchain) October 27, 2025
Livingston believes this creates a scarcity backdrop. If policy signals shift and liquidity improves, a smaller tradable supply could amplify price moves. Less available supply combined with easier monetary conditions can make rallies more pronounced.
The current reserve level sits near the low end of recent ranges. Livingston frames the situation as a potential “mother-of-all liquidity pivots.” He expects the Fed may need to adjust policy when reserves approach critical levels.
Bank cash at the Federal Reserve currently stands at approximately $2.93 trillion, down from higher levels earlier this year.
